REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder and Board of Directors of MAXXAM Group Inc.:

          We have audited the accompanying consolidated balance sheets of
MAXXAM Group Inc. (a Delaware corporation and a wholly owned subsidiary of
MAXXAM Group Holdings Inc.) and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations and cash flows
for each of the three years in the period ended December 31, 1997.  These
financial statements and the schedule referred to below are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

          We conducted our audits in accordance with generally accepted
auditing standards.  Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

          In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
MAXXAM Group Inc. and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

          Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole.  The schedule
listed in Item 14(a)(2) of this Form 10-K is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic consolidated financial statements.  This schedule has
been subjected to the auditing procedures applied in the audits of the
basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth
therein in relation to the basic consolidated financial statements taken as
a whole.



                                        ARTHUR ANDERSEN LLP
San Francisco, California
January 30, 1998

(Except for the matter discussed in the fourth paragraph of Note 9 as to
which the date is February 27, 1998.)


                     MAXXAM GROUP INC. AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEET
                         (IN THOUSANDS OF DOLLARS)


<TABLE>
<CAPTION>

                                                          December 31,
                                                  --------------------------
                                                       1997          1996
                                                  ------------  ------------
                      ASSETS
<S>                                               <C>           <C>

Current assets:
     Cash and cash equivalents                    $     89,840  $     72,418 
     Marketable securities                              51,324        31,423 
     Receivables:
          Trade                                         19,269        18,850 
          Other                                          2,157         2,542 
     Inventories                                        58,078        69,307 
     Prepaid expenses and other current assets          13,080         5,474 
                                                  ------------  ------------
               Total current assets                    233,748       200,014 
Timber and timberlands, net of accumulated
     depletion of $236,824 and $221,063,
     respectively                                      321,206       324,986 
Property, plant and equipment, net of accumulated
     depreciation of $85,468 and $76,753,
     respectively                                      102,761       102,029 
Deferred financing costs, net                           21,513        24,249 
Deferred income taxes                                   49,623        55,047 
Restricted cash                                         28,434        29,967 
Other assets                                             4,209         6,455 
                                                  ------------  ------------
                                                  $    761,494  $    742,747 
                                                  ============  ============
      LIABILITIES AND STOCKHOLDER'S DEFICIT

Current liabilities:
     Accounts payable                             $      3,535  $      3,928 
     Accrued interest                                   24,338        24,899 
     Accrued compensation and related benefits          12,544        10,033 
     Deferred income taxes                               9,671        10,173 
     Other accrued liabilities                           2,564         3,335 
     Long-term debt, current maturities                 19,429        16,258 
                                                  ------------  ------------
               Total current liabilities                72,081        68,626 
Long-term debt, less current maturities                762,896       759,769 
Other noncurrent liabilities                            28,976        26,387 
                                                  ------------  ------------
               Total liabilities                       863,953       854,782 
                                                  ------------  ------------
Contingencies

Stockholder's deficit:
     Common stock, $.08-1/3 par value; 1,000
          shares authorized, 100 shares issued               -             - 
     Additional capital                                 81,287        81,287 
     Accumulated deficit                              (183,746)     (193,322)
                                                  ------------  ------------
               Total stockholder's deficit            (102,459)     (112,035)
                                                  ------------  ------------
                                                  $    761,494  $    742,747 
                                                  ============  ============


<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>


                     MAXXAM GROUP INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF OPERATIONS
                         (IN THOUSANDS OF DOLLARS)


<TABLE>
<CAPTION>

                                                   Years Ended December 31,
                                          ----------------------------------------
                                               1997          1996          1995
                                          ------------  ------------  ------------
<S>                                       <C>           <C>           <C>
Net sales:
     Lumber and logs                      $    260,993  $    243,726  $    216,898 
     Other                                      26,182        20,858        25,694 
                                          ------------  ------------  ------------
                                               287,175       264,584       242,592 
                                          ------------  ------------  ------------

Operating expenses:
     Cost of goods sold                        162,020       148,522       127,124 
     Selling, general and administrative
          expenses                              14,205        15,853        15,884 
     Depletion and depreciation                 27,108        28,176        26,405 
                                          ------------  ------------  ------------
                                               203,333       192,551       169,413 
                                          ------------  ------------  ------------

Operating income                                83,842        72,033        73,179 

Other income (expense):
     Investment, interest and other
          income                                13,444        10,942         9,393 
     Interest expense                          (78,674)      (78,045)      (77,824)
                                          ------------  ------------  ------------
Income before income taxes                      18,612         4,930         4,748 
Credit (provision) in lieu of income
     taxes                                      (6,036)          680        (1,211)
                                          ------------  ------------  ------------
Net income                                $     12,576  $      5,610  $      3,537 
                                          ============  ============  ============

<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>


                     MAXXAM GROUP INC. AND SUBSIDIARIES

                    CONSOLIDATED STATEMENT OF CASH FLOWS
                         (IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>


                                                   Years Ended December 31,
                                          ----------------------------------------
                                               1997          1996          1995
                                          ------------  ------------  ------------
<S>                                       <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income                           $     12,576  $      5,610  $      3,537 
     Adjustments to reconcile net income
          to net cash provided by
          operating activities:
          Depletion and depreciation            27,108        28,176        26,405 
          Amortization of deferred
               financing costs and
               discounts on
               long-term debt                   15,888        14,714        13,328 
          Net sales (purchases) of
               marketable securities           (11,330)       10,298       (19,533)
          Net gains on marketable
               securities                       (8,571)       (5,153)       (4,175)
     Increase (decrease) in cash                                                   
          resulting from changes in:
          Receivables                              (28)        1,284         5,778 
          Inventories, net of depletion          9,657         6,011        (7,695)
          Prepaid, expenses and other
               current assets                   (5,360)          714        (3,384)
          Accounts payable                         (54)         (238)          463 
          Accrued interest                        (561)         (455)         (411)
          Accrued and deferred income
               taxes                             5,618          (925)        2,303 
          Other liabilities                      3,280        (4,288)        7,734 
     Other                                          96             5         1,020 
                                          ------------  ------------  ------------
               Net cash provided by
                    operating activities        48,319        55,753        25,370 
                                          ------------  ------------  ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                      (13,467)      (15,200)       (9,852)
     Payment of note receivable from
          affiliate                                  -             -         2,500 
     Net proceeds from sale of assets              336           122            18 
                                          ------------  ------------  ------------
               Net cash used for
                    investing activities       (13,131)      (15,078)       (7,334)
                                          ------------  ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Redemptions, repurchases of and
          principal payments on long-term
          debt                                 (16,299)      (14,153)      (14,300)
     Dividends paid                             (3,000)       (3,900)       (4,800)
     Restricted cash withdrawals, net            1,533         1,400         1,035 
     Incurrence of financing costs                   -             -          (150)
                                          ------------  ------------  ------------
               Net cash used for
                    financing activities       (17,766)      (16,653)      (18,215)
                                          ------------  ------------  ------------

NET INCREASE (DECREASE) IN CASH AND CASH
     EQUIVALENTS                                17,422        24,022          (179)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
     YEAR                                       72,418        48,396        48,575 
                                          ------------  ------------  ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR  $     89,840  $     72,418  $     48,396 
                                          ============  ============  ============

<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>


                     MAXXAM GROUP INC. AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.        BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
          POLICIES

     BASIS OF PRESENTATION

          The consolidated financial statements include the accounts of
MAXXAM Group Inc. ("MGI") and its subsidiaries, collectively referred to
herein as the "Company."  MGI is a wholly owned subsidiary of MAXXAM Group
Holdings Inc. ("MGHI") which is a wholly owned subsidiary of MAXXAM Inc.
("MAXXAM").  Intercompany balances and transactions have been eliminated. 
Certain reclassifications have been made to prior years' financial
statements to be consistent with the current year's presentation.

          The Company is engaged in forest products operations conducted
through its wholly owned subsidiaries, The Pacific Lumber Company ("Pacific
Lumber") and Britt Lumber Co., Inc. ("Britt").  Pacific Lumber's principal
wholly owned subsidiaries are Scotia Pacific Holding Company ("Scotia
Pacific") and Salmon Creek Corporation ("Salmon Creek").  Pacific Lumber is
engaged in several principal aspects of the lumber industry, including the
growing and harvesting of redwood and Douglas-fir timber, the milling of
logs into lumber and the manufacture of lumber into a variety of finished
products. Britt manufactures redwood and cedar fencing and decking products
from small diameter logs, a substantial portion of which are obtained from
Pacific Lumber.  Housing, construction and remodeling are the principal
markets for the Company's lumber products.  Export sales generally
constitute approximately 5% of sales.  A significant portion of forest
product sales are made to third parties located west of the Mississippi
River.

     USE OF ESTIMATES AND ASSUMPTIONS

          The preparation of financial statements in accordance with
generally accepted accounting principles requires the use of estimates and
assumptions that affect (i) the reported amounts of assets and liabilities,
(ii) the disclosure of contingent assets and liabilities known to exist as
of the date the financial statements are published and (iii) the reported
amount of revenues and expenses recognized during each period presented. 
The Company reviews all significant estimates affecting its consolidated
financial statements on a recurring basis and records the effect of any
necessary adjustments prior to their publication.  Adjustments made with
respect to the use of estimates often relate to improved information not
previously available.  Uncertainties with respect to such estimates and
assumptions are inherent in the preparation of the Company's consolidated
financial statements; accordingly, it is possible that the subsequent
resolution of any one of the contingent matters described in Note 8 could
differ materially from current estimates. The results of an adverse
resolution of such uncertainties could have a material effect on the
Company's consolidated financial position, results of operations or
liquidity.

     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Cash Equivalents
          Cash equivalents consist of highly liquid money market
instruments with original maturities of three months or less.

          Marketable Securities
          Marketable securities are carried at fair value.  The cost of the
securities sold is determined using the first-in, first-out method. 
Included in investment, interest and other income for each of the three
years ended December 31, 1997 were: 1997 - net unrealized holding gains of
$2,851,000 and net realized gains of $5,720,000; 1996 - net unrealized
holding losses of $902,000 and net realized gains of $5,287,000; and 1995 -
net unrealized holding gains of $1,666,000 and net realized gains of
$2,509,000.

          Inventories
          Inventories are stated at the lower of cost or market.  Cost is
primarily determined using the last-in, first-out ("LIFO") method.

          Timber and Timberlands
          Timber and timberlands are stated at cost, net of accumulated
depletion.  Depletion is computed utilizing the unit-of-production method
based upon estimates of timber values and quantities.

          Property, Plant and Equipment
          Property, plant and equipment, including capitalized interest, is
stated at cost, net of accumulated depreciation.  Depreciation is computed
utilizing the straight-line method at rates based upon the estimated useful
lives of the various classes of assets.

          Deferred Financing Costs
          Costs incurred to obtain financing are deferred and amortized
over the estimated term of the related borrowing.

          Restricted Cash and Concentrations of Credit Risk
          Restricted cash represents the amount deposited into an account
(the "Liquidity Account") held by the Trustee under the Indenture governing
the 7.95% Timber Collateralized Notes due 2015 (the "Timber Notes") of
Scotia Pacific.  See Note 4.  The Liquidity Account is not available,
except under certain limited circumstances, for Scotia Pacific's working
capital purposes; however, it is available to pay the Rated Amortization
(as defined in Note 4) and interest on the Timber Notes if and to the
extent that cash flows are insufficient to make such payments.  The
required Liquidity Account balance will generally decline as principal
payments are made on the Timber Notes.  Investment, interest and other
income for the years ended December 31, 1997, 1996 and 1995 includes
interest of approximately $2,336,000, $2,457,000 and $2,560,000,
respectively, attributable to an investment rate agreement (at 7.95% per
annum) with the financial institution which holds the Liquidity Account.

          At December 31, 1997 and 1996, cash and cash equivalents include
$17,784,000 and $17,600,000, respectively, (the "Payment Account") which is
reserved for debt service payments on the Timber Notes (see Note 4).  The
Payment Account and the Liquidity Account are each held by a different
financial institution.  In the event of nonperformance by such financial
institutions, the Company's exposure to credit loss is represented by the
amounts deposited plus any unpaid accrued interest thereon.  The Company
mitigates its concentrations of credit risk with respect to these
restricted cash deposits by maintaining them at high credit quality
financial institutions and monitoring the credit ratings of these
institutions.

          Fair Value of Financial Instruments
          The carrying amounts of cash equivalents and restricted cash
approximate fair value.  Marketable securities are carried at fair value
which is determined based on quoted market prices.  As of December 31, 1997
and 1996, the estimated fair value of long-term debt, including current
maturities, was $816,014,000 and $747,991,000, respectively.  The estimated
fair value of long-term debt is determined based on the quoted market
prices for the Timber Notes, Pacific Lumber's 10-1/2% Senior Notes due 2003
(the "Pacific Lumber Senior Notes"), the Company's 11-1/4% Senior Secured
Notes due 2003 (the "MGI Senior Notes") and the Company's 12-1/4% Senior
Secured Discount Notes due 2003 (the "MGI Discount Notes" and together with
the MGI Senior Notes, the "MGI Notes"), and on the current rates offered
for borrowings similar to the other debt.  Some of the Company's publicly
traded debt issues are thinly traded financial instruments; accordingly,
their market prices at any balance sheet date may not be representative of
the prices which would be derived from a more active market.

2.        INVENTORIES

          Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>

                                                        December 31,        
                                                ---------------------------
                                                     1997          1996
                                                ------------- -------------
<S>                                             <C>           <C>
Lumber                                          $      43,731 $      49,829
Logs                                                   14,347        19,478
                                                ------------- -------------
                                                $      58,078 $      69,307
                                                ============= =============

</TABLE>

3.        PROPERTY, PLANT AND EQUIPMENT

          The major classes of property, plant and equipment are as follows
(dollar amounts in thousands):


<TABLE>
<CAPTION>

                                        Estimated           December 31,
                                                    --------------------------
                                       Useful Lives      1997          1996
                                      ------------- ------------  ------------
<S>                                   <C>           <C>           <C>
Logging roads, land and improvements       15 years $     16,685  $     11,541 
Buildings                                  33 years       36,637        34,877 
Machinery and equipment                3 - 15 years      134,823       132,364 
Construction in progress                                      84             - 
                                                    ------------  ------------
                                                         188,229       178,782 
Less:  accumulated depreciation                          (85,468)      (76,753)
                                                    ------------  ------------
                                                    $    102,761  $    102,029 
                                                    ============  ============

</TABLE>

          Depreciation expense for the years ended December 31, 1997, 1996
and 1995 was $9,774,000, $ 9,382,000 and $9,663,000, respectively.

4.        LONG-TERM DEBT

          Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                        December 31,
                                                --------------------------
                                                     1997          1996
                                                ------------  ------------
<S>                                             <C>           <C>
7.95% Scotia Pacific Timber Collateralized
     Notes due through July 20, 2015            $    319,965  $    336,130 
10-1/2% Pacific Lumber Senior Notes due March
     1, 2003                                         235,000       235,000 
Pacific Lumber Credit Agreement                        9,445             - 
11-1/4% MGI Senior Secured Notes due August 1,
     2003                                            100,000       100,000 
     12-1/4% MGI Senior Secured Discount Notes due
     August 1, 2003, net of discount                 117,325       104,173 
Other                                                    590           724 
                                                ------------  ------------
                                                     782,325       776,027 
Less: current maturities                             (19,429)      (16,258)
                                                ------------  ------------
                                                $    762,896  $    759,769 
                                                ============  ============
</TABLE>

          The indenture governing the Timber Notes (the "Timber Note
Indenture") prohibits Scotia Pacific from incurring any additional
indebtedness for borrowed money and generally limits the business
activities of Scotia Pacific to the ownership and operation of its timber
and timberlands.  The Timber Notes are senior secured obligations of Scotia
Pacific and are not obligations of, or guaranteed by, Pacific Lumber or any
other person.  The Timber Notes are secured by a lien on (i) Scotia
Pacific's timber and timberlands (representing $154,288,000 of the
Company's consolidated balance at December 31, 1997), (ii) Scotia Pacific's
contract rights and certain other assets, (iii) the funds deposited in the
Payment Account and the Liquidity Account, and (iv) substantially all of
Scotia Pacific's other property and equipment.

          The Timber Notes are structured to link, to the extent of
available cash, the deemed depletion of Scotia Pacific's timber (through
the harvest and sale of logs) to the required amortization of the Timber
Notes.  The required amount of amortization due on any Timber Note payment
date is determined by various mathematical formulas set forth in the Timber
Note Indenture.  The minimum amount of principal which Scotia Pacific must
pay (on a cumulative basis) through any Timber Note payment date in order
to avoid an Event of Default (as defined) is referred to as rated
amortization ("Rated Amortization").  If all payments of principal are made
in accordance with Rated Amortization, the payment date on which Scotia
Pacific will pay the final installment of principal is July 20, 2015.  The
amount of principal which Scotia Pacific must pay through each Timber Note
payment date in order to avoid prepayment or deficiency premiums is
referred to as scheduled amortization ("Scheduled Amortization").  If all
payments of principal are made in accordance with Scheduled Amortization,
the payment date on which Scotia Pacific will pay the final installment of
principal is July 20, 2009.

          Substantially all of the Company's consolidated assets are owned
by Pacific Lumber and a significant portion of Pacific Lumber's assets are
owned by Scotia Pacific.  The Company expects that Pacific Lumber will
provide a major portion of the Company's future operating cash flow. 
Pacific Lumber is dependent upon Scotia Pacific for a significant portion
of its operating cash flow.  The holders of the Timber Notes have priority
over the claims of creditors of Pacific Lumber with respect to the assets
and cash flows of Scotia Pacific, and the holders of the Pacific Lumber
Senior Notes have priority over the claims and creditors of the Company
with respect to the assets and cash flows of Pacific Lumber.  Under the
terms of the Timber Note Indenture, Scotia Pacific will generally have
available cash for distribution to Pacific Lumber when Scotia Pacific's
cash flow from operations exceeds the amounts required by the Timber Note
Indenture to be reserved for the payment of current debt service (including
interest, principal and premiums) on the Timber Notes, capital expenditures
and certain other operating expenses.

          Principal and interest on the Timber Notes are payable semi-
annually on January 20 and July 20.  On January 20, 1998, Scotia Pacific
paid $10,773,000 of principal on the Timber Notes.  The Timber Notes are
redeemable at the option of Scotia Pacific, in whole but not in part, at
any time.  The redemption price of the Timber Notes is equal to the sum of
the principal amount, accrued interest and a prepayment premium calculated
based upon the yield of like-term Treasury securities plus 50 basis points.

          Interest on the Pacific Lumber Senior Notes is payable semi-
annually on March 1 and September 1.  The Pacific Lumber Senior Notes are
redeemable at the option of Pacific Lumber, in whole or in part, on or
after March 1, 1998 at a price of 103% of the principal amount plus accrued
interest.  The redemption price is reduced annually until March 1, 2000,
after which time the Pacific Lumber Senior Notes are redeemable at par. 
The Pacific Lumber Senior Notes are unsecured and are senior indebtedness
of Pacific Lumber; however, they are effectively subordinated to the Timber
Notes.  The indenture governing the Pacific Lumber Senior Notes contains
various covenants which, among other things, limit Pacific Lumber's ability
to incur additional indebtedness and liens, to engage in transactions with 
affiliates, to make investments and to pay dividends.

          On October 9, 1997, Pacific Lumber amended its revolving credit
agreement with a bank (the "Pacific Lumber Credit Agreement") to extend the
date on which it expires to May 31, 2000.  Borrowings under the Pacific
Lumber Credit Agreement are secured by Pacific Lumber's trade receivables
and inventories, with interest currently computed at the bank's reference
rate plus 1-1/4% or the bank's offshore rate plus 2-1/4%.  The Pacific
Lumber Credit Agreement provides for borrowings of up to $60,000,000, of
which $20,000,000 may be used for standby letters of credit and $30,000,000
is restricted to timberland acquisitions.  Borrowings made pursuant to the
portion of the credit facility restricted to timberland acquisitions would
also be secured by the purchased timberlands.  As of December 31, 1997,
$35,484,000 of borrowings was available under the Pacific Lumber Credit
Agreement, of which $4,929,000 was available for letters of credit and
$20,554,000 was restricted to timberland acquisitions.  As of December 31,
1997, $9,445,000 borrowings were outstanding and letters of credit
outstanding amounted to $15,071,000.  The Pacific Lumber Credit Agreement
contains covenants substantially similar to those contained in the
indenture governing the Pacific Lumber Senior Notes.

          As of December 31, 1997, under the most restrictive covenants
contained in the indentures governing the Pacific Lumber Senior Notes, the
Timber Notes and the Pacific Lumber Credit Agreement, Pacific Lumber could
pay approximately $15,900,000 of dividends.

          On August 4, 1993, the Company issued $100,000,000 aggregate
principal amount of the MGI Senior Notes and $126,720,000 aggregate
principal amount (approximately $70,000,000 net of original issue discount)
of the MGI Discount Notes.  The MGI Notes are secured by the Company's
pledge of 100% of the common stock of Pacific Lumber, Britt and MAXXAM
Properties Inc. ("MPI"), a wholly owned subsidiary of the Company, and by
MGHI's pledge of 27,938,250 shares of Kaiser Aluminum Corporation
("Kaiser") common stock.  The indenture governing the MGI Notes, among
other things, restricts the ability of the Company to incur additional
indebtedness and liens, engage in transactions with affiliates, pay
dividends and make investments.  As of December 31, 1997, under the most
restrictive of these covenants, approximately $4,100,000 of dividends could
be paid by the Company.   The MGI Notes are senior indebtedness of the
Company; however, they are effectively subordinated to the liabilities of
the Company's subsidiaries, which include the Timber Notes and the Pacific
Lumber Senior Notes.  The MGI Discount Notes are net of discount of
$8,395,000 and $21,547,000 at December 31, 1997 and 1996, respectively.

          The MGI Senior Notes pay interest semi-annually on February 1 and
August 1 of each year.  The MGI Discount Notes will not pay any interest
until February 1, 1999, at which time semi-annual interest payments will
become due on each February 1 and August 1 thereafter.

          Maturities
          Scheduled maturities of long-term debt for the five years
following December 31, 1997, using the Scheduled Amortization for the
Timber Notes, are:  $19,429,000 in 1998, $24,107,000 in 1999, $26,426,000
in 2000, $27,189,000 in 2001, $27,213,000 in 2002 and $666,356,000
thereafter.  Maturities for 1998 through 2002 are principally attributable
to the Timber Notes.

          Restricted Net Assets of Subsidiaries
          At December 31, 1997, certain debt instruments restricted the
ability of Pacific Lumber to transfer assets, make loans and advances and
pay dividends to the Company.  As of December 31, 1997, all of the assets
of Pacific Lumber and its subsidiaries are subject to such restrictions.

5.        CREDIT (PROVISION) IN LIEU OF INCOME TAXES

          Income taxes are determined using an asset and liability approach
which requires the recognition of deferred income tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. 
Under this method, deferred income tax assets and liabilities are
determined based on the temporary differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates. 
The Company and its subsidiaries are members of MAXXAM's consolidated
return group for federal income tax purposes.

          Pursuant to a tax allocation agreement between MAXXAM, Pacific
Lumber, Scotia Pacific and Salmon Creek (the "PL Tax Allocation
Agreement"), Pacific Lumber is liable to MAXXAM for the federal
consolidated income tax liability of Pacific Lumber, Scotia Pacific and
certain other subsidiaries of Pacific Lumber (but excluding Salmon Creek)
(collectively, the "PL Subgroup") computed as if the PL Subgroup was a
separate affiliated group of corporations which was never connected with
MAXXAM.  The PL Tax Allocation Agreement further provides that Salmon Creek
is liable to MAXXAM for its federal income tax liability computed on a
separate company basis as if it was never connected with MAXXAM.  The
remaining subsidiaries of MGI are each liable to MAXXAM for their
respective income tax liabilities computed on a separate company basis as
if they were never connected with MAXXAM, pursuant to their respective tax
allocation agreements.

          MGI's tax allocation agreement with MAXXAM, (the "Tax Allocation
Agreement"), provides that the Company's federal income tax liability is
computed as if MGI files a consolidated tax return with all of its
subsidiaries except Salmon Creek, and that such corporations were never
connected with MAXXAM (the "MGI Consolidated Tax Liability").  The federal
income tax liability of MGI is the difference between (i) the MGI
Consolidated Tax Liability and (ii) the sum of the separate tax liabilities
for the Company's subsidiaries (computed as discussed above), but excluding
Salmon Creek.  To the extent that the MGI Consolidated Tax Liability is
less than the aggregate amounts in (ii), MAXXAM is obligated to pay the
amount of such difference to MGI.

          The credit (provision) in lieu of income taxes on income before
income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>

                                                  Years Ended December 31,
                                         ----------------------------------------
                                              1997          1996          1995
                                         ------------  ------------  ------------
<S>                                      <C>           <C>           <C>
Current:
     Federal (provision) in lieu of
          income taxes                   $       (423) $       (159) $       (167)
     State and local (provision)                 (139)           (9)          (35)
                                         ------------  ------------  ------------
                                                 (562)         (168)         (202)
                                         ------------  ------------  ------------
Deferred:
     Federal credit (provision) in lieu
          of income taxes                      (5,523)          363           (33)
     State and local credit (provision)            49           485          (976)
                                         ------------  ------------  ------------
                                               (5,474)          848        (1,009)
                                         ------------  ------------  ------------
                                         $     (6,036) $        680  $     (1,211)
                                         ============  ============  ============

</TABLE>

          A reconciliation between the credit (provision) in lieu of income
taxes and the amount computed by applying the federal statutory income tax
rate to income before income taxes is as follows (in thousands):

<TABLE>
<CAPTION>

                                                  Years Ended December 31,
                                         ----------------------------------------
                                              1997          1996          1995
                                         ------------  ------------  ------------

<S>                                      <C>           <C>           <C>
Income before income taxes               $     18,612  $      4,930  $      4,748 
                                         ============  ============  ============

Amount of federal income tax based upon
     the statutory rate                  $     (6,514) $     (1,726) $     (1,662)
Revision of prior years' tax estimates
     and other changes in valuation
     allowances                                   982         3,372           907 
Expenses for which no federal tax
     benefit is available                        (178)         (493)            - 
State and local taxes, net of federal
     tax effect                                   (59)         (573)         (657)
Other                                            (267)          100           201 
                                         ------------  ------------  ------------
                                         $     (6,036) $        680  $     (1,211)
                                         ============  ============  ============

</TABLE>

          Revision of prior years' tax estimates and other changes in
valuation allowances as shown in the table above include amounts for the
reversal of reserves which the Company no longer believes are necessary,
other changes in prior year tax estimates and changes in valuation
allowances with respect to deferred income tax assets.  Generally, the
reversal of reserves relates to the expiration of the relevant statute of
limitations with respect to certain income tax returns or the resolution of
specific income tax matters with the relevant tax authorities.  For the
years ended December 31, 1996 and 1995, the reversal of reserves which the
Company believes are no longer necessary resulted in a credit to the income
tax provision of $3,203,000 and $127,000, respectively.  There was no
reversal of reserves for the year ended December 31, 1997.

          The components of the Company's net deferred income tax assets
(liabilities) are as follows (in thousands):

<TABLE>
<CAPTION>

                                                         December 31,
                                                 --------------------------
                                                      1997          1996
                                                 ------------  ------------
<S>                                              <C>           <C>
Deferred income tax assets:
     Loss and credit carryforwards               $     68,140  $     79,411 
     Timber and timberlands                            25,800        28,992 
     Other liabilities and other                       32,316        22,934 
     Valuation allowances                             (49,828)      (51,049)
                                                 ------------  ------------
          Total deferred income tax assets, net        76,428        80,288 
                                                 ------------  ------------
Deferred income tax liabilities:
     Property, plant and equipment                    (17,455)      (17,458)
     Inventories                                      (12,750)      (15,091)
     Other                                             (6,271)       (2,865)
                                                 ------------  ------------
          Total deferred income tax liabilities       (36,476)      (35,414)
                                                 ------------  ------------
Net deferred income tax assets                   $     39,952  $     44,874 
                                                 ============  ============


</TABLE>

          The valuation allowances listed above relate to loss and credit
carryforwards.  As of December 31, 1997, approximately $25,800,000 of the
net deferred income tax assets listed above relate to the excess of the tax
basis over financial statement basis with respect to timber and
timberlands.  The Company believes that it is more likely than not that
this net deferred income tax asset will be realized, based primarily upon
the estimated value of its timber and timberlands which is well in excess
of its tax basis.  Also included in net deferred income tax assets as of
December 31, 1997 is $18,312,000 which relates to the benefit of loss and
credit carryforwards, net of valuation allowances.  The Company evaluated
all appropriate factors to determine the proper valuation allowances for
loss and credit carryforwards.  These factors included any limitations
concerning use of the carryforwards, the year the carryforwards expire and
the levels of taxable income necessary for utilization.  The Company has
concluded that it will more likely than not generate sufficient taxable
income to realize the benefit attributable to the loss and credit
carryforwards for which valuation allowances were not provided.

          Included in the net deferred income tax assets listed above are
$35,683,000 and $41,206,000 at December 31, 1997 and 1996, respectively,
which are recorded pursuant to the tax allocation agreements with MAXXAM.

          The following table presents the estimated tax attributes for
federal income tax purposes for the Company and its subsidiaries as of
December 31, 1997, under the terms of the respective tax allocation
agreements (in thousands).  The utilization of certain of these attributes
is subject to limitations.


<TABLE>
<CAPTION>

                                                                  Expiring
                                                                  Through
                                                               -------------
<S>                                              <C>           <C>
Regular Tax Attribute Carryforwards:
     Net operating losses                        $    186,814           2012
     Net capital losses                                 4,201           1998
     Minimum tax credit                                   802     Indefinite
Alternative Minimum Tax Attribute                                           
Carryforwards:
     Net operating losses                        $     159,334          2012
     Net capital losses                                  4,201          1998


</TABLE>

6.        EMPLOYEE BENEFIT PLANS

     RETIREMENT PLAN

          Pacific Lumber has a defined benefit plan which covers all
employees of Pacific Lumber.  Under the plan, employees are eligible for
benefits at age 65, or earlier, if certain provisions are met.  The
benefits are determined under a career average formula based on each year
of service with Pacific Lumber and the employee's compensation for that
year.  Pacific Lumber's funding policy is to contribute annually an amount
at least equal to the minimum cash contribution required by The Employee
Retirement Income Security Act of 1974, as amended.

          A summary of the components of net periodic pension cost is as
follows (in thousands):


<TABLE>
<CAPTION>

                                                  Years Ended December 31,
                                         ----------------------------------------
                                              1997          1996          1995
                                         ------------  ------------  ------------
<S>                                      <C>           <C>           <C>
Service cost - benefits earned during
     the year                            $      1,937  $      1,903  $      1,483 
Interest cost on projected benefit
     obligation                                 1,892         1,682         1,693 
Actual gain on plan assets                     (3,988)       (2,762)       (3,900)
Net amortization and deferral                   2,451         1,448         2,460 
                                         ------------  ------------  ------------ 
Net periodic pension cost                $      2,292  $      2,271  $      1,736 
                                         ============  ============  ============ 


</TABLE>

          The following table sets forth the funded status and amounts
recognized in the Consolidated Balance Sheet (in thousands):

<TABLE>
<CAPTION>

                                                         December 31,
                                                 --------------------------
                                                      1997          1996
                                                 ------------  ------------
<S>                                              <C>           <C>
Actuarial present value of accumulated plan
benefits:
     Vested benefit obligation                   $     22,181  $     18,506 
     Non-vested benefit obligation                      2,176         1,371 
                                                 ------------  ------------
          Total accumulated benefit obligation   $     24,357  $     19,877 
                                                 ============  ============
Projected benefit obligation                     $     28,940  $     23,582 
Plan assets at fair value, primarily equity and
     debt securities                                  (25,872)      (21,800)
                                                 ------------  ------------
Projected benefit obligation in excess of plan
     assets                                             3,068         1,782 
Unrecognized net transition asset                          12            18 
Unrecognized net gain                                   4,226         2,855 
Unrecognized prior service cost                          (950)          (39)
                                                 ------------  ------------
          Accrued pension liability              $      6,356  $      4,616 
                                                 ============  ============ 

</TABLE>

          The assumptions used in accounting for the defined benefit plan
were as follows:


<TABLE>
<CAPTION>

                                              1997          1996          1995
                                         ------------- ------------- -------------
<S>                                      <C>           <C>           <C>
Rate of increase in compensation levels           5.0%          5.0%          5.0%
Discount rate                                    7.25%          7.5%         7.25%
Expected long-term rate of return on
     assets                                       8.0%          8.0%          8.0%


</TABLE>

     POSTRETIREMENT MEDICAL BENEFITS

          Pacific Lumber has an unfunded benefit plan for certain
postretirement medical benefits which covers substantially all employees of
Pacific Lumber.  Participants of the plan are eligible for certain health
care benefits upon termination of employment and retirement and
commencement of pension benefits.  Participants make contributions for a
portion of the cost of their health care benefits.  The expected costs of
postretirement medical benefits are accrued over the period the employees
provide services to the date of their full eligibility for such benefits.

          A summary of the components of net periodic postretirement
medical benefit cost is as follows (in thousands):


<TABLE>
<CAPTION>

                                                      Years Ended December 31,
                                             ----------------------------------------
                                                  1997          1996          1995
                                             ------------  ------------  ------------
<S>                                          <C>           <C>           <C>
Service cost - medical benefits earned
     during the year                         $        287  $        332  $        228 
Interest cost on accumulated postretirement
     medical benefit obligation                       362           415           317 
Net amortization and deferral                         (42)            -           (53)
                                             ------------  ------------  ------------ 
Net periodic postretirement medical benefit
     cost                                    $        607  $        747  $        492 
                                             ------------  ------------  ------------ 

</TABLE>

          The postretirement medical benefit liability recognized in the
Company's Consolidated Balance Sheet is as follows (in thousands):


<TABLE>
<CAPTION>

                                                         December 31,
                                                 --------------------------
                                                      1997          1996
                                                 ------------  ------------
<S>                                              <C>           <C>
Retirees                                         $        710  $      1,182 
Actives eligible for benefits                             893           905 
Actives not eligible for benefits                       3,434         3,818 
                                                 ------------  ------------
     Accumulated postretirement medical benefit
          obligation                                    5,037         5,905 
                                                        1,003           (86)
Unrecognized net gain (loss)                     ------------  ------------
     Postretirement medical benefit liability    $      6,040  $      5,819 
                                                 ============  ============

</TABLE>

          The annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 10.0% for 1998 and
is assumed to decrease gradually to 5.5% in 2009 and remain at that level
thereafter.  Each one percentage point increase in the assumed health care
cost trend rate would increase the accumulated postretirement medical
benefit obligation as of December 31, 1997 by approximately $655,000 and
the aggregate of the service and interest cost components of net periodic
postretirement medical benefit cost by approximately $112,000.

          The discount rates used in determining the accumulated
postretirement medical benefit obligation were 7.25% and 7.5% at December
31, 1997 and 1996, respectively.

     EMPLOYEE SAVINGS PLAN

          Pacific Lumber's employees are eligible to participate in a
defined contribution savings plan sponsored by MAXXAM.  This plan is
designed to enhance the existing retirement programs of participating
employees.  Employees may elect to defer up to 16% of their base
compensation to the plan.  For those participants who have elected to defer
a portion of their compensation to the plan, Pacific Lumber's contributions
consist of a matching contribution of up to 4% of the base compensation of
participants.  The cost to the Company of this plan was $1,516,000,
$1,388,000 and $1,281,000 for the years ended December 31, 1997, 1996 and
1995, respectively.

     WORKERS' COMPENSATION BENEFITS

          Pacific Lumber is self-insured for workers' compensation
benefits, whereas Britt is insured for workers' compensation benefits. 
Included in accrued compensation and related benefits and other noncurrent
liabilities are accruals for workers' compensation claims amounting to
$10,800,000 and $8,000,000 at December 31, 1997 and 1996, respectively. 
Workers' compensation expenses amounted to $4,660,000, $2,564,000 and
$3,579,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.

7.        RELATED PARTY TRANSACTIONS

          MAXXAM provides the Company and certain of the Company's
subsidiaries with accounting and data processing services.  In addition,
MAXXAM provides the Company with office space and various office personnel,
insurance, legal, operating, financial and certain other services. 
MAXXAM's expenses incurred on behalf of the Company are reimbursed by the
Company through payments consisting of (i) an allocation of the lease
expense for the office space utilized by or on behalf of the Company and
(ii) a reimbursement of actual out-of-pocket expenses incurred by MAXXAM,
including, but not limited to, labor costs of MAXXAM personnel rendering
services to the Company.  Charges by MAXXAM for such services were
$2,160,000, $2,423,000 and $1,994,000 for the years ended December 31,
1997, 1996 and 1995, respectively.  The Company believes that the services
being rendered are on terms not less favorable to the Company than those
which would be obtainable from unaffiliated third parties.

8.        STOCKHOLDER'S DEFICIT

Changes in stockholder's deficit were (in thousands):


<TABLE>
<CAPTION>

                                      Common
                                      Stock
                                    ($.08-1/3     Additional   Accumulated
                                       Par)        Capital       Deficit        Total    
                                  ------------  ------------  ------------  ------------
<S>                               <C>           <C>           <C>           <C>
Balance, January 1, 1995          $          -  $     81,287  $   (193,769) $   (112,482)
     Net income                              -             -         3,537         3,537 
     Dividends                               -             -        (4,800)       (4,800)
                                  ------------  ------------  ------------  ------------
Balance, December 31, 1995                   -        81,287      (195,032)     (113,745)
     Net income                              -             -         5,610         5,610 
     Dividends                               -             -        (3,900)       (3,900)
                                  ------------  ------------  ------------  ------------
Balance, December 31, 1996                   -        81,287      (193,322)     (112,035)
     Net income                              -             -        12,576        12,576 
     Dividends                               -             -        (3,000)       (3,000)
                                  ------------  ------------  ------------  ------------
Balance, December 31, 1997        $          -  $     81,287  $   (183,746) $   (102,459)
                                  ============  ============  ============  ============
</TABLE>

9.        CONTINGENCIES
          Pacific Lumber's business is subject to a variety of California
and federal laws and regulations dealing with timber harvesting, threatened
and endangered species and habitat for such species, and air and water
quality.  Compliance with such laws and regulations plays a significant
role in Pacific Lumber's business.  While compliance with such laws,
regulations and judicial and administrative interpretations, together with
the cost of litigation incurred in connection with certain timber
harvesting operations, have increased the costs of Pacific Lumber, they
have not had a significant adverse effect on its financial position,
results of operations or liquidity.  However, these laws and related
administrative actions and legal challenges have severely restricted the
ability of Pacific Lumber to harvest virgin old growth timber on its
timberlands, and to a lesser extent, residual old growth timber.

          On September 28, 1996, Pacific Lumber (on behalf of itself, its
subsidiaries and affiliates) and MAXXAM (collectively, the "Pacific Lumber
Parties") entered into an agreement with the United States and California
("Headwaters Agreement") which provides the framework for the acquisition
by the United States and California of approximately 5,600 acres of Pacific
Lumber's timberlands.  These timberlands are commonly referred to as the
Headwaters Forest and the Elk Head Springs Forest (collectively, the
"Headwaters Timberlands").  A substantial portion of the Headwaters
Timberlands consists of virgin old growth timberlands.  Approximately 4,900
of these acres are owned by Salmon Creek, with the remaining acreage being
owned by Scotia Pacific (Pacific Lumber having harvesting rights on
approximately 300 of such acres).  The Headwaters Timberlands would be
transferred in exchange for (a) property and other consideration from the
United States and California having an aggregate fair market value of $300
million, and (b) approximately 7,755 acres of adjacent timberlands (the
"Elk River Timberlands") to be acquired from a third party.  As part of the
Headwaters Agreement, the Pacific Lumber Parties agreed to not enter the
Headwaters Forest or the Elk Head Springs Forest to conduct any logging or
salvage operations.

          Closing of the Headwaters Agreement is subject to various
conditions, including federal and California funding, approval of a
sustained yield plan ("SYP"), approval of a habitat conservation plan
covering multiple species ("Multi-Species HCP") and issuance of a related
incidental take permit (the "Permit") and the issuance of certain tax
agreements satisfactory to the Pacific Lumber Parties.

          In November 1997, President Clinton signed an appropriations
bill which contains authorization for the expenditure of $250 million
of federal funds towards consummation of the Headwaters Agreement.  On
February 27, 1998, Pacific Lumber, MAXXAM and various government
agencies entered into a Pre-Permit Application Agreement in Principle
(the "HCP/SYP Agreement") regarding certain understandings that they
had reached regarding the Multi-Species HCP, the Permit and the SYP. 
The HCP/SYP Agreement provides that the Permit and Multi-Species HCP would
have a term of 50 years, and would limit the activities which could be
conducted by Pacific Lumber in twelve forest groves to those which would
enhance habitat.  These groves aggregate approximately 8,000 acres and
consist of substantial quantities of virgin and residual old growth
redwood and Douglas-fir timber.

          In addition to being an important milestone toward completion of
the Headwaters Agreement, the Company also believes that the HCP/SYP
Agreement is a positive development in respect of the environmental
challenges that it has faced over the last several years.  Several species,
including the northern spotted owl, the marbled murrelet and the coho
salmon, have been listed as endangered or threatened under the federal
Endangered Species Act ("ESA") and/or the California Endangered Species Act
("CESA").   Pacific Lumber has developed federal and state northern spotted
owl management plans which permit harvesting activities to be conducted so
long as Pacific Lumber adheres to certain measures designed to protect the
northern spotted owl. The potential impact of the listings of the marbled
murrelet and the coho salmon is more uncertain.  If the Multi-Species HCP
is approved, Pacific Lumber would be issued the Permit, which would allow
limited incidental "take" of listed species so long as there was no
"jeopardy" to the species and the Multi-Species HCP would identify the
measures to be instituted in order to minimize and mitigate the anticipated
level of take to the greatest extent possible.  The Multi-Species HCP
would be designed to protect currently listed species as well as to
consider candidate and future-listed species.  Pacific Lumber is also
attempting to include in the Multi-Species HCP a resolution of the
potential effect of limits by the Environmental Protection Agency ("EPA")
on sedimentation, temperature and other factors for seventeen northern
California rivers and certain of their tributaries, including rivers within
Pacific Lumber's timberlands.  These limitations will be aimed at
protecting water quality.

          Lawsuits are pending or threatened which seek to prevent
Pacific Lumber from implementing certain of its approved timber harvesting
plans ("THPs"). While challenges with respect to Pacific Lumber's young
growth timber have historically been limited, a lawsuit was recently filed
under the ESA which relates to a significant number of THPs covering young
growth timber of Pacific Lumber. While the Company expects these
environmentally focused objections and lawsuits to continue, it believes
that the HCP/SYP Agreement will enhance its position in connection with
these challenges.  The Company also believes that the Multi-Species
HCP would expedite the preparation and facilitate approval of its THPs.

          The HCP/SYP Agreement also contains certain provisions relating
to the SYP.  Subject to further study, the Company expects Pacific Lumber
to propose a long-term sustained yield harvest level ("LTSY") which is
somewhat less than Pacific Lumber's recent harvest levels.  If the SYP is
approved, Pacific Lumber will have complied with certain BOF regulations
requiring that timber companies project timber growth and harvest on their
timberlands over a 100-year planning period and establish an LTSY harvest
level.  The SYP must demonstrate that the average annual harvest over
any rolling ten-year period will not exceed the LTSY harvest level and
that Pacific Lumber's projected timber inventory is capable of sustaining
the LTSY harvest level in the last decade of the 100-year planning period.
An approved SYP is expected to be valid for ten years, although it would
be subject to review after five years.  Thereafter, revised SYPs will
be prepared every decade that address the LTSY harvest level based upon
reassessment of changes in the resource base and other factors. 

          The final terms of the SYP, the Multi-Species HCP and the Permit
are subject to additional negotiation and agreement among the parties as
well as public review and comment.  While the parties are working
diligently to complete the Multi-Species HCP and the SYP as well as the
other closing conditions contained in the Headwaters Agreement, there can
be no assurance that the Headwaters Agreement will be consummated or that
an SYP, Multi-Species HCP or Permit acceptable to Pacific Lumber will be
approved.

          In the event that a Multi-Species HCP is not approved, Pacific
Lumber will not enjoy the benefits of expedited preparation and facilitated
review of its THPs.  Furthermore, if a Multi-Species HCP acceptable to
Pacific Lumber is not approved, it is impossible for the Company to
determine the potential adverse effect of the listings of the marbled
murrelet and coho salmon or the EPA's limitations on the Company's
financial position, results of operations or liquidity until such time as
the various regulatory and legal issues are resolved; however, if Pacific
Lumber is unable to harvest, or is severely limited in harvesting,
on significant amounts of its timberlands, such effect could be materially
adverse to the Company.

10.  SUPPLEMENTAL CASH FLOW AND OTHER INFORMATION


<TABLE>
<CAPTION>

                                                   Years Ended December 31,
                                          ----------------------------------------
                                               1997          1996          1995
                                          ------------- ------------  ------------
                                                        (In thousands)
<S>                                       <C>           <C>           <C>
Supplemental information on non-cash
     investing and financing activities:
     Net margin payments for marketable
          securities                      $           - $          -  $      6,648 
     Timber and timberlands acquired
          subject to long-term debt               9,445            -           615 
Supplemental disclosure of cash flow
     information:
     Interest paid, net of capitalized
          interest                        $      63,644 $     63,785  $     64,907 
     Income taxes paid (refunded)                   166       (2,900)       (5,190)
     Tax allocation payments to MAXXAM              418          188             - 


</TABLE>

          Items Related to 1992 Earthquake
          In 1995 Pacific Lumber recorded reductions in cost of sales of
$1,527,000 resulting from business interruption insurance reimbursements
for higher operating costs and the related loss of revenues resulting from
the April 1992 earthquake.

11.  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

          Summary quarterly financial information for the years ended
December 31, 1997 and 1996 is as follows (in thousands):


<TABLE>
<CAPTION>

                                                   Three Months Ended
                                ------------------------------------------------------
                                   March 31      June 30    September 30   December 31
                                ------------  ------------  ------------  ------------
<S>                             <C>           <C>           <C>           <C>
1997:                                                                                  
     Net sales                  $     66,815  $     76,848  $     72,811  $     70,701 
     Operating income                 18,687        24,125        22,813        18,217 
     Net income                           15         5,351         4,064         3,146 

1996:
     Net sales                  $     59,804  $     71,303  $     68,473  $     65,004 
     Operating income                 16,417        19,010        17,184        19,422 
     Net income (loss)                   124         3,909           (35)        1,612 


</TABLE>